Behind the Scenes of Bank Legal Recovery ft. Ritesh Shah

Bank loan recovery is a complex challenge, mixing financial, legal, and operational hurdles. In this episode of "The Counsel's Code," we sit down with Ritesh Shah, a seasoned legal professional with over two decades of experience, to get an inside look at the world of resolution and recovery.

Meet the Speaker: Ritesh Shah

We are thrilled to feature Ritesh Shah, the EVP Legal and Head of Resolution & Recovery at Kotak Mahindra Bank. With nearly 20 years at Kotak, Mr. Shah has built a deep expertise in legal resolution, recovery, negotiation, and arbitration. He began his legal journey as an associate at Shiran & Associate in Vadodara, Gujarat.

Key Insights from the Conversation

What inspired you to pursue a career in law?

From an early age, Mr. Shah was "drawn to the idea of problem-solving through structural reasoning." He believes every problem has a solution. He was attracted to law because it offers a "unique blend of intellectual challenge, public service, and the ability to influence outcomes that genuinely impact people." The dynamic nature of law and its power to "balance justice with commerce" cemented his decision.

Why do clients default, and how do they do it?

Mr. Shah explains that not all defaults are deliberate. Sometimes, a "situation default" occurs. Deliberate defaults, however, often happen due to "fund diversion," either to a group company, another project, or for other investments. Unnecessary expansion beyond a company's capacity can also lead to a default.

Are there fraudulent loan cases?

Yes, fraudulent cases exist. Mr. Shah notes that if loan and security documents are properly executed and all communications and notices are in a proper flow, it "can be lead to swift resolution versus the highly contested litigation."

Key challenges in recovery & resolution at a big firm?

Mr. Shah manages NPA recovery for two major divisions of the bank. The key challenges his team faces include:

• Borrowers filing multiple litigations or unnecessarily dragging the bank into criminal litigation.

• Delays in the judicial process, such as matters getting repeatedly adjourned.

• Depression in the asset's valuation. He notes this is a major challenge. When an account turns into an NPA, the market perception can cause the property's value to deplete, making it difficult to meet the bank's expectation of recovering the original value.

If recovery is less than the loan, how do you manage?

The bank doesn't just go after the primary collateral. Mr. Shah explains that "there will be some hypothecated credit asset also." Furthermore, the bank can "invoke the guarantee." His team can file applications before the Debt Recovery Tribunal (DRT) to get an "attachment before the judgment" on the guarantor's other assets, even if they aren't charged to the bank, to recover the shortfall.

How has recovery evolved with tech & new laws?

Regulatory changes from the DRT and SARFAESI Act have "evolved the recovery and resolution process very strongly." The biggest change came with the Insolvency and Bankruptcy Code (IBC) in 2016, which "is giving some different resolution impact." He says the process has become "creditor-driven," with creditors "getting into control of the business" and driving the resolution plan.

In what ways is technology impacting recovery?

"Technology is helping very well." Mr. Shah points to AI's ability to provide "good analysis of the judgment in a span of minutes or second." Furthermore, the "e-filing" process in High Courts and the Supreme Court is "creating lot of solution" for advocates and in-house counsel, streamlining the previously physical filing process.

How does Kotak balance recovery with customer goodwill?

This goes back to his earlier point: "every defaulter may not be a chronic defaulter." While the bank will "drive your legal action as per the process," the communication with the borrower or guarantor "should be open and the clear communication."

The bank's business is "to lend the money and to earn the interest," not litigation. If the bank sees an "ability to revive the business," they will "go for the resolution and restructuring." This "help[s] borrower to establish a good confidence, good trust on the bank," and after a successful restructuring, they "continue the relationship with the bank."

Can you share a complex recovery case you handled?

Mr. Shah recalls a consortium lending case where Kotak had a "lower percentage" stake. One lender took the lead to restructure the account. The process was "challenging" and "continued for some 6 months," but eventually, "each and every lender could come on the same platform" and agree. The result: no lender encountered a loss, and "on other side, company also got revived."

What is your success rate in recovery cases?

"In our case, we have seen 100% success." Mr. Shah clarifies this by adding, "time value is there." Some cases resolve quickly, while others get "into problem litigation." The key is to "apply the strategy where each and every case get resolved with 100% result."

How do you keep your team motivated in tough recovery cases?

Mr. Shah does not accept the idea of "impossibility in the recovering or the resolution." He believes that if he sees impossibility, he is "creating just a negative environment." Instead, "my team is work on the positive environment despite any challenges." They work jointly as a team to "overcome" and "find the solution."

How is recovery changing, and can assistants make it faster?

Mr. Shah points to the evolution from the DRT Act to SARFAESI and now to IBC. He highlights that the "IBC is giving the timely resolution with the strict timelines," which is speeding up the process.

Any memorable or funny fraud cases?

Mr. Shah explains that with fraud cases, you have to "get into the action" to see if it was actually fraud or a business-related issue, like fund diversion. This requires his team to use "commercial wisdom" and "financial analysis." His legal recovery team is "not limiting ourself only to the legal thing"; they have developed skills in analyzing financial reports, stock audits, and transaction audits.

Under IPC, how are loan defaulters penalized?

Mr. Shah clarifies that the "punishment" is the liquidation of their assets. Through the DRT, the bank can get "attachment before judgment" on all assets, "and everything can be liquidated in the debt prone process."

Advice for young aspirants in this field?

• Integrity: "Develop the integrity, which is the utmost important role."

• Focus & Dedication: Be fundamental "with all those all relevant sections and necessary judgment analysis."

• Clear Communication: Have "open-ended communication" with all parties.

• Learning Appetite: "Legally... you have to read the law every day and you have to learn every day."

Rapid Fire Round

In a quick-fire round, Mr. Shah shared his immediate thoughts. The biggest myth about loan defaulters is "they are broken." The hardest type of case to resolve is "corporate" due to "highly contested litigation." The one skill every recovery officer must have is "open and clear communication." He prefers an "out of court settlement" because "time is essence." AI in recovery is an "opportunity." If not in banking, he would have been an "event manager." The most creative excuse from a defaulter is "I don't have money right now," and the most satisfying part of his job is "handing over the closed file to the consent department."

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Disclaimer: The views expressed in this podcast are the speaker’s personal opinions and do not necessarily reflect the positions of the podcast, Volody, or any current or former employers.